Culture doesn't make the difference

Steve Chapman

If you see an economy burdened with the heavy hand of bureaucrats, suffocating controls and arbitrary delays, you can assume it will grow slowly or not at all. You can also expect that Republicans, with ample justification, will blame the government for stifling productive activity.

But Mitt Romney can surprise you. Speaking in Jerusalem, he noted how much richer Israel is than "the areas managed by the Palestinian Authority," and he fingered a different cause. "Culture makes all the difference," he said.

Romney is not the first person to compare and explain Israel'seconomic performance over time with other places. The immortal economist Milton Friedman — who would have been 100 years old this week — did so back in the 1990s. But he wasn't complimenting the Israelis, and he didn't ascribe the difference to culture. He blamed it on bad government.

His comparison was between Israel and Hong Kong: two small places that after World War II were inundated by refugees who, as he put it, were "reputed to be intelligent and commercially able." Israel had more land and superior natural resources, Friedman noted, "yet from 1960 to 1996, its average per capita income went from 60 percent more than Hong Kong's to 40 percent less."

How come? Not, as you might think, because of Israel's higher defense costs, which he noted were financed mostly by foreign governments and contributions from Jews elsewhere. The key factor, he wrote, was that Hong Kong's government never spent more than 15 percent of its national income, while "government spending in Israel was at times close to 100 percent of national income."

Government budgets were not the only factor. Israel's economy was built on an old-fashioned socialist model, while Hong Kong practiced laissez faire.

Israel has moved away from socialism in recent years, but the gap persists. Today, the CIA says, per capita income in Hong Kong is nearly $50,000 a year, compared with $31,400 in Israel. It's hard to pin the gap on culture: In the United States, after all, Jews and Chinese-Americans both enjoy higher than average incomes. Friedman's analysis makes more sense.

It also applies to the Palestinians' plight. When Romney referred to "the areas managed by the Palestinian Authority," he skipped over the fact that these areas are under substantial Israeli control — and have been for decades. He also ignored the ways in which that control has strangled the Palestinians' material progress.

The 2012 CIA World Factbook says, "Israeli closure policies continue to disrupt labor and trade flows, industrial capacity and basic commerce, eroding the productive capacity of the West Bank economy."

Writes Bernard Avishai, a business professor at Hebrew University, "Try growing a supermarket chain when your just-in-time logistics system has to deal with 600 roadblocks." These are just part of what Palestinian entrepreneurs have to overcome.

Israelis, and Romney, may say all this is entirely the fault of the Palestinians for not making peace. But that's a separate issue. Given the many obstacles that have been erected, blaming the Palestinian culture is a stretch. Even the most business-friendly culture can't create prosperity where governments won't let it.

Hong Kong, again, offers proof. Culturally, it was similar to the rest of China. But under communist dictator Mao Zedong, the people of China endured catastrophic famines and economic chaos — while those in Hong Kong, blessed with a free-market framework, ascended to prosperity.

It's not just Hong Kong that has surpassed Israel. Ireland, once considerably poorer, now has a far higher per capita income. The Irish, it's fair to say, were not previously famous for their go-getting capitalist fervor.

Attributing the Palestinian stagnation to a malignant culture breeds a dangerous complacency by suggesting Israel has no capacity to help. It casts a bad light on all Palestinians, including the ambitious and hardworking. It encourages the smug assumption that some fatal flaw in Arabs or Muslims dooms their countries to failure.

It should be obvious that without economic freedom, we'll never know what they can do. Recognizing the crucial role that official policies play, however, puts the onus on the Israeli government to find ways to liberate the Palestinian economy without sacrificing security.

In assessing the dismal performance of the U.S. economy over the past three-and-a-half years, Romney does not mind informing Americans that policy, not culture, is the problem. Why not let Israelis in on the secret?

Steve Chapman is a member of the Tribune's editorial board and blogs at chicagotribune.com/chapman.